Recent Government Inquiry Cites Increasing Life Expectancy as Risk to Retirement Plans
Announcement posted by Approved Financial Planners 17 Sep 2014
Financial and retirement planning firm in Perth reveals why many Australians may outlive their retirement funds.
Perth, WA, 17 September 2014 - Recently, the Australian Government released the Financial Services Inquiry (FSI) report. The report covered all aspects of the financial services industry, but Approved Financial Planners, a financial and retirement planning firm in Perth, found the comments about retirement products and life expectancy to be particularly relevant.
The FSI report’s executive summary contains a quote that Daniel Stevens, a financial planner for the firm Approved Financial Planners, finds especially important:
“The retirement phase of superannuation is underdeveloped and does not meet the risk management needs of many retirees.”
Why Life Expectancy is Making Retirement Planning More Difficult
Currently, many retirement products are based on an average life expectancy of 85 years. This number has become the norm in the financial planning industry. However, statistics support a conclusion that one who reaches age 65 can reasonably expect to make it as far as 90 years of age. In addition, 10% of women who make it to age 65 can now expect to live 100 years or longer.
While this is great news, it also presents a problem for retirement planning. Retirement income is now going to have to last longer than it did to prevent retirees from outliving their money. Besides age, there are other factors that affect retirement plans.
Inflation
While inflation can be somewhat predictable, no prediction model is perfect. Inflation must be figured into any estimate of how much money is needed to retire comfortably, but there is no guarantee that inflation won’t get worse in the future. Most planners build a “buffer” into their plans to account for inflation, but there is always the risk that inflation will grow too fast in comparison to what a retiree has left to spend.
Market Fluctuations
Fluctuations and corrections in the market, such as the Global Financial Crisis (GFC), can erode retirement investments. While new laws have provided more flexibility with self managed superannuation funds, no investment model is perfect, nor are they guaranteed to produce consistently. Most financial planners recommend diversity, but even diversity is no guarantee of a positive outcome.
Why Financial Planners are Necessary
The Government recommends that retirement products should be “income stream products with longevity risk protection.” Currently, most income stream products are either annuities or account-based pensions. The Government recommends that more choices be made available in the future.
According to Mr Stevens, “Retirement planning is just too important to risk going it alone. The current range of financial products are sufficient for most people, but you can’t afford not having an expert to help you maximise your income. Due to compounding over the life of any investment, every mistake you make is magnified and can seriously compromise your retirement lifestyle.”
Mr Stevens concluded, “Ideally, you don’t outlive your retirement funds but they don’t outlive you, either. A great financial planner can help you attain that balance.”
Approved Financial Planners are a financial and retirement planning firm in Perth. They offer a wide array of products and are now associated with AMP Financial Planning Pty Limited, giving them access to even more resources and products. To learn more, call 1300 787 274 or visit their website: http://www.approvedfp.com.au/.
The FSI report’s executive summary contains a quote that Daniel Stevens, a financial planner for the firm Approved Financial Planners, finds especially important:
“The retirement phase of superannuation is underdeveloped and does not meet the risk management needs of many retirees.”
Why Life Expectancy is Making Retirement Planning More Difficult
Currently, many retirement products are based on an average life expectancy of 85 years. This number has become the norm in the financial planning industry. However, statistics support a conclusion that one who reaches age 65 can reasonably expect to make it as far as 90 years of age. In addition, 10% of women who make it to age 65 can now expect to live 100 years or longer.
While this is great news, it also presents a problem for retirement planning. Retirement income is now going to have to last longer than it did to prevent retirees from outliving their money. Besides age, there are other factors that affect retirement plans.
Inflation
While inflation can be somewhat predictable, no prediction model is perfect. Inflation must be figured into any estimate of how much money is needed to retire comfortably, but there is no guarantee that inflation won’t get worse in the future. Most planners build a “buffer” into their plans to account for inflation, but there is always the risk that inflation will grow too fast in comparison to what a retiree has left to spend.
Market Fluctuations
Fluctuations and corrections in the market, such as the Global Financial Crisis (GFC), can erode retirement investments. While new laws have provided more flexibility with self managed superannuation funds, no investment model is perfect, nor are they guaranteed to produce consistently. Most financial planners recommend diversity, but even diversity is no guarantee of a positive outcome.
Why Financial Planners are Necessary
The Government recommends that retirement products should be “income stream products with longevity risk protection.” Currently, most income stream products are either annuities or account-based pensions. The Government recommends that more choices be made available in the future.
According to Mr Stevens, “Retirement planning is just too important to risk going it alone. The current range of financial products are sufficient for most people, but you can’t afford not having an expert to help you maximise your income. Due to compounding over the life of any investment, every mistake you make is magnified and can seriously compromise your retirement lifestyle.”
Mr Stevens concluded, “Ideally, you don’t outlive your retirement funds but they don’t outlive you, either. A great financial planner can help you attain that balance.”
Approved Financial Planners are a financial and retirement planning firm in Perth. They offer a wide array of products and are now associated with AMP Financial Planning Pty Limited, giving them access to even more resources and products. To learn more, call 1300 787 274 or visit their website: http://www.approvedfp.com.au/.